Yvette Nicole Brown poses with characters from ‘The Simpsons’ at the Disney+ official US launch party. Picture: GETTY IMAGES/RODIN ECKENROTH
Yvette Nicole Brown poses with characters from ‘The Simpsons’ at the Disney+ official US launch party. Picture: GETTY IMAGES/RODIN ECKENROTH

Disney launched its new streaming service this week with all the hoopla of a Magic Kingdom parade. CEO Bob Iger says Disney+ is not only a new era for the company but also a statement about the future of entertainment.

For once, the reality will match the showman’s hyperbole. Just as cable upended network television, digital subscription services have spoiled the market for pay-TV. Operating income at Disney’s media networks unit was falling when it opted to sell directly to consumers instead of via distributors in 2017. It has been rewarded for renewing its business model with a share price boost.

Disney’s vast back catalogue makes it the most credible challenger to Netflix in the great streaming wars breaking out across the media universe. Its family vibe will help it sell to buyers with children. Other content taps into fan culture. The Mandalorian, Disney’s flashy new tent-pole series, is set in the Star Wars universe. Characters from the popular Marvel superhero franchise will appear in TV shows.

At $6.99 (about R105) per month, the service is cheaper than Netflix. Customers of Verizon’s unlimited phone plans can get it free. That covers about 17-million households.

Still, taking on Netflix, which has 158-million subscribers, is going to be expensive. Disney has already hacked away at operating income as pre-launch costs rose. It has spent $71bn buying much of 20th Century Fox for content. Disney has splurged another $2.6bn on majority control of tech company BAMTech to create a slick digital service.

Operating losses from streaming services will squeeze group profits over the next few years, even if profits in units like theme parks rise. Billions of dollars are surging into new content by Apple, Netflix, Amazon and AT&T. Disney may have popular films and shows, but it is not averse to buying content too. In the last quarter, group profits of $785m were down 66% from a year ago.

Disney thinks streaming will be profitable in 2024 — by which time Disney+ is expected have 90-million subscribers. Even in a bloated market that looks possible. There is a danger The Mouse will cannibalise current users heavily to feed the new service.

Still, Iger’s golden run of bets inspire confidence. Pixar reinvigorated Disney's animation business. Marvel gave it the highest-grossing film of all time. Disney+ should make the company into one of the biggest streaming services in the world.

© The Financial Times 2019

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